NCPA - National Center for Policy Analysis

Regulating Consumer Debt

October 23, 2015

In light of the announcement by the Consumer Financial Protection Bureau (CFPB) that it is considering new regulation for consumer debt collection, it is important for policymakers to understand the potential consequences of such regulation. If creditors are unable to effectively collect debts, they will be reluctant to lend. If borrowers feel oppressed by unfair debt collection practices, they will be reluctant to borrow. Maintaining a modern, flexible system of rules for debt collection is essential in order for both borrowers and lenders to have confidence that contracts will be enforced and that the terms of those contracts will be fair and transparent.

Before imposing new regulations, the CFPB should consider the following factors, which will adversely affect consumers of credit.

  • Most questionable debt collection practices have previously been outlawed or restricted. Concerning existing practices, it is challenging to discern whether further restrictions would create any new benefits for borrowers that would exceed their additional costs.
  • Restrictions on debt collection may benefit consumers who are actually subject to the collection process, but this will come at the expense of other consumers who have to pay more for credit and gain less access to credit.
  • Compliance with Dodd-Frank and other regulations enacted since the financial crisis is disproportionately costly for smaller firms in the financial services industry, including the debt collection and debt buying industries.

From its inception, the CFPB has described itself as a "data-driven agency" that applies sound economic and empirical analysis to craft consumer protection policies. The CFPB should seek to follow this goal for consumer debt collection rules and consider rules that can be shown to protect consumers from overreaching creditor behavior, ensure access to credit at competitive prices and avoid burdening consumers with unnecessary restrictions and compliance costs.

Source: Todd Zywicki, "The Law and Economics of Consumer Debt Collection and Its Regulation," Mercatus Center, September 29, 2015.


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